For Outer Office Markets, Now What?

The vacancy rate in Westchester rose to 17.6 percent at the end of the first quarter, up from 15.9 percent in the fourth quarter of 2009, according to Cushman & Wakefield. Part of this change was the availability of more than 80,000 square feet at 113 King Street in Armonk. The property is being marketed as a corporate headquarters building by Cushman & Wakefield.

Leasing activity is definitely up. Major deals in the fourth quarter included Allen System Corp.’s leasing 26,394 square feet at 287 Bowman Avenue in Port Chester and Avon Products’ leasing 21,670 square feet at 44 South Broadway in White Plains.

Westchester is comparable to its neighbor, Fairfield, in terms of unemployment, with 5.7 percent fewer jobs compared to the peak. Rents are slightly lower overall.

The county is home to many law firms and diverse professional services, which aren’t as vulnerable to stock market swings. “They can be more resilient, depending on business models,” said Mr. Jodka of CoStar.

“We’ve done a couple hundred thousand square feet of deals in the last four months,” said Jeff Newman, an executive vice president at Malkin Properties. “I think companies with expiring leases are seeing this is the last opportunity to lock in value.”

Malkin Properties has seen the law firm Eckert Seamans expand twice at 10 Bank Street in White Plains, and Fifth Street Capital and Pearson Education have also recently signed leases. The building is near the Metro North train station, and again, convenient access to transit-particularly into New York City-is a major asset to outer-market properties.

Fairfield

The office market in Fairfield County centers on Stamford, a nexus of financial services and home to the headquarters of the Royal Bank of Scotland, as well as to the capital markets division of UBS AG. It was hard hit by the recession, and the leasing market is still the weakest compared to nearby areas, with a vacancy rate of 26 percent, said Mr. Jodka of CoStar.

But there are signs of life, with a “surge” in leasing in the last two quarters that included tenants outside of the financial industry. Nestle Waters moved from Greenwich to 165,000 square feet at 900 Long Ridge Road in Stamford. Priceline.com also took 69,822 square feet at 800 Connecticut Avenue in Norwalk, and Knight Capital subleased 66,485 feet at 33 Benedict Place in Greenwich, according to Cushman & Wakefield.

Another major lease came last week at High Ridge Park in Stamford, with computer security companies Protegrity Corporation and McAfee signing leases there. But 148,000 square feet are still vacant. The on-site amenities, including a cafe, reasonable operating costs and proximity to affordable housing in nearby towns were all cited as reasons for the lease.

“A suburban location like High Ridge Park is attractive to someone who’s commuting from Danbury, Trumbull or Shelton,” said Steve Baker, a senior director at Cushman & Wakefield, the broker for the property.

Activity has even spilled over to the construction industry.

“Two thousand ten has been a nice rebound,” said Thomas Durels, CEO of Malkin Construction. “We’re seeing a very nice pickup. We have some projects that were diverted in 2009, and are moving forward in 2010; 2009 was an anomaly. My expectation is that 2010 reflects a more sustainable level of activity.” The company has two schools under construction, along with a multifamily unit called Metro Green in the south end of Stamford.

In the same area is Harbor Point, a major new development that will include two office towers totaling around 500,000 square feet and apartment units, with three residential buildings slated to open next month. But developer Building and Land Technology has yet to secure any commercial tenants, and the two office towers’ fate is uncertain. (The company did not respond to requests for comment.)

BY ALL APPEARANCES, the outer office leasing market has escaped the abyss in 2010. But for those looking for peak levels anytime soon, don’t hold your breath.

“I don’t know what normal is anymore,” said Mr. Gubner of RHYS. “The market has been so weird. Two thousand seven couldn’t be normal; 2009 can’t be normal because it was horrible. I think we’ve hit bottom and started the upturn.”